Why is the Balance Sheet for Restaurants So Important? (With Example!) | U-Nique Accounting (2024)

But what exactly does it show? And why is it particularly important for restaurant owners to pay attention to?

In this blog, we’re going to break down exactly what’s on a Balance Sheet and why you should be reviewing it as a restaurant owner each month.

Let’s talk Balance Sheet.

What is a Balance Sheet?

A Balance Sheet is a financial statement that provides a snapshot of a restaurant’s financial position at a specific point in time.

This is different from the P&L, or income statement, which shows how you are performing over a defined period of time.

The Balance Sheet presents information about your restaurant’s assets, liabilities, and equity, and essentially shows how healthy your finances are at any point in time.

Typically, it’s prepared at the end of set periods (e.g., every 4 weeks (see 13-period accounting method), every month, quarter, or annually).

What is on a Restaurant Balance Sheet?

The Balance Sheet is organized into two sections: The company’s assets, and the company’s liabilities and equity.

The Balance Sheet is called a “balance” sheet because the total assets must equal the total liabilities and equity.

This is known as the accounting equation and is represented as Assets = Liabilities + Equity.

The three categories make up the total resources available to your restaurant business, the debt the business owes, and your personal ownership in the business.

Let’s look at each category in more detail:

Assets

The simplest example is cash, actual money that your business can use to pay suppliers, the landlord, etc.

There are many different types of Assets, and they are presented on the Balance Sheet in order of their liquidity (how quickly they can be converted to cash).

Examples of assets that might appear on a balance sheet for a restaurant include cash (bank accounts, cash register, cash safe), receivables, inventory and equipment.

Liabilities

Think of Liabilities as the opposite of Assets. They are what you owe to other parties, and are presented on the Balance Sheet in order of how quickly they must be paid.

Examples of liabilities for a restaurant might include accounts payable, credit card balances, tips owed to employees, remaining gift card balances, taxes owed (sales/excise tax), and loans.

Equity

Out of the three, Equity is the trickiest to understand. It shows the amount of capital invested, and the cumulative amount of profits retained (undistributed) to owners.

Equity can also include other items such as stock options and warrants.

Let’s look at an example of a simplified restaurant balance sheet.

You’re just getting started and you put $10,000 into your restaurant as a sole owner.

Your ownership is 100% and you don’t owe money to anyone yet.

Your Equity is $10,000.

Now, let’s say you need to buy a POS system for $2,000 with your credit card.

The Balance Sheet will change to something like this:

Typically, the restaurant’s Balance Sheet is something that your accountant takes care of.

They will typically use information from the business’s financial records and transactions to create the Balance Sheet and update it regularly.

However, it’s important to note that while your accountant is responsible for preparing the balance sheet, you as a business owner should also understand and review it regularly.

This will help you make informed decisions about your business’s finances and identify any potential issues or opportunities for improvement.

If you don’t want an accountant who is experienced with restaurants, or you’re simply exploring your options, we’re always here to help.

You can jump on a quick 15-minute call with one of our restaurant accountants to help answer any questions you have.

Until next time!